21 Apr Estate Planning and Divorce
“Till death do us part” is often quoted in marriage vows. And for good reason. Very few marriages start out with the intention of ending in divorce. However, divorce is a reality that affects about half of all marriages. Phelps LaClair estate planning law firm understands the pain that divorcing couples feel when their hopes and dreams fall apart. We have been designing estate plans for forty years for our clients in Chandler, Mesa, Phoenix and Scottsdale. In situations where there is an estate plan with a trust involved, the divorce proceedings can be even more complicated when it comes to dividing property. Read on to learn more about the various factors at play when it comes to estate planning and divorce.
What kind of trust?
If either spouse is the grantor of an irrevocable trust, and has funded it with either pre-marital or post-marital assets, the trust is the legal owner of the property and it cannot be divided.
If the trust is a revocable trust, other factors come into play:
- Who established the trust and how it was initially funded
- Whether any common property was added to the trust
- Whether any distributions were made from the trust to the divorcing parties
- How those distributions were used
Yours, mine, or ours?
If a spouse created a trust before marriage, and no common property was added to it after marriage, then the granting spouse is the sole owner of the trust and the assets in the trust cannot be divided.
If a spouse creates a revocable trust at any time during the marriage and funds it with common property, the assets in the trust can be divided equally. Those assets could be paychecks, investment dividends, financial account interests, and real property purchased with common funds.
If a trust is created using both marital and non-marital assets, the non-marital portions will not be divided only if the spouse contributing those assets can prove they were pre-marital. Many pre and post-nuptial agreements list these assets that the couple agrees were or would be solely owned by one or the other spouse.
Finally, a spouse named as remainder beneficiary in a trust created by a third party, such as a grandparent, has no interest in that trust until the death of the current beneficiary. The assets included in that trust are considered to be non-marital property.
When does mine become ours?
Usually, if one spouse receives an inheritance as a named beneficiary of a trust, those assets are the sole property of that spouse. If the spouse uses funds from the inheritance to purchase a jointly owned property, that property becomes community property and can be divided in a divorce. In the same manner, if one spouse has purchased a house with pre-marital funds, and the other spouse uses his or her salary or pre-marital funds to pay down the mortgage, the house becomes common property and is subject to division.
It’s complicated!
It is often difficult to keep money and property separate in a marriage. For those who desire to do that, consultation with an estate planning attorney prior to marriage is essential. At Phelps LaClair, we understand how complicated it can be. The information presented here is simply an overview. For legal advice, you need to speak to us directly. We have forty years of experience writing custom estate plans that will protect your assets and pass on your wealth to the following generations. Let us know if you have any questions regarding estate planning and divorce. We offer a free first time consultation with no obligation—so give us a call today to discuss your personalized estate plan.
Images used under creative commons license (Commerical Use) 04/21/2020